The entryway to the Scaleworks building.
Scaleworks, founded in 2015, is a hybrid between a venture capital firm and a private equity firm. Credit: Bonnie Arbittier / San Antonio Report

Venture equity company Scaleworks on Monday announced its second fund: an $80 million sum of money that will support further expansion of its business-to-business software company portfolio.

Now standing at six companies, Scaleworks’ portfolio has brought in eight tech firms since it was founded in late 2015 – two of which, code hosting platform Assembla and email add-on FollowUp, have been acquired by other entities.

Scaleworks will look to buy five or six companies with its second fund, with about half of the deals expected to be done this year. But there is no hard timeline for growing the portfolio, said Ed Bryne, Scaleworks general partner. The sweet spot for this round of acquisitions will be in the $5 million to $10 million range, Byrne said.

“We’re always going to be opportunistic,” he said. “We certainly can be patient. There’s no pressure to deploy. We could certainly move fast if we get lots of great deals. My guess is we keep the cadence of two or three going, but that’s driven more by opportunities than any kind of grand design.”

Scaleworks’ portfolio of companies employs approximately 300 people throughout the globe, and about half are based in the firm’s 20,000-square-foot space on Houston Street in the heart of the city’s tech corridor, Byrne.

Money from its initial fund, a total of $60 million, bought such companies as Chargify, Earth Class Mail, Filestack, and Qualaroo. Earth Class Mail, for example, was founded in the Pacific Northwest in the mid-2000s. The company floundered for a while and eventually filed for bankruptcy in 2015. After Scaleworks acquired the company in 2016, its business model pivoted from business-to-consumer to business-to-business. In the latter half of last year, the company grew about 20 percent.

Scaleworks’ strategy of helping older, medium-sized tech companies build on their software products will remain intact, Byrne said.

“We’ll do more of the same thing. We’ll do bigger deals,” he said. “If there’s anything we learned in the first fund, it’s that the bigger the company … the more impact they can have.”

Founded in 2015, the San Antonio entity is a hybrid between a venture capital firm and a private equity firm. Venture capital firms invest money into startups and, therefore, own percentages of them. Private equity firms, meanwhile, own 100 percent of the companies they buy. Scaleworks raises its funds from investors and shareholders, Byrne said.

Its portfolio companies are typically past the startup phase for tech companies. In many cases, they’ve been operating for 10 or more years and revolve around a software service that remains popular but might have financial or leadership issues.

By creating an infusion of jobs and tech companies in the urban core, Scaleworks has helped grow San Antonio’s downtown tech scene, said David Heard, who leads the local tech trade association Tech Bloc.

“When they do deals I’d imagine they’re going to move them to San Antonio – the great majority, if not all of them,” Heard said. “Scaleworks is the single biggest economic development and job creation play for tech in downtown, bar none, at the moment.”

JJ Velasquez

JJ Velasquez is a columnist at the San Antonio Report. A former reporter and editor at the SA Report, he currently works as a project manager for New York City-based Advance Local.